Why General Electric Stock Is Still a Buy, but Maybe Less of One

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General Electric Co. (NYSE: GE) has had a tough 2017. Not everything is bad at GE, but the story is hard one to get into a so-called elevator pitch for investors right now. On top of Jeff Immelt retiring as CEO earlier than expected, GE’s overall business portfolio continues to be less and less financial and more focused on industrial and energy.

The debate rages about whether investors should buy into GE shares at this point. The stock has been pointed out over and over as the worst performing DJIA stock of 2017. Some analysts say that there is great value. Others feel that GE now needs to fall further before it is investable.

A fresh report from independent research firm Argus calls GE a Buy. The firm did lower its target price to $27 from $30. Argus has noted that GE maintains a clear focus on returning capital to shareholders via buybacks and a rich 4% dividend yield. The firm feels that ownership is changing from growth to value and that the new management team will need to focus on improving cash flow generation to spawn investor enthusiasm and a higher earnings multiple.

Argus did lower its official 2018 earnings estimate to $1.75 per share in its call. The current consensus 2018 estimate of $1.69 per share is down from $1.89 just a quarter ago.

GE shares have lagged the market and any other major index of late. Over the past quarter, its shares have declined 18% while the S&P 500 has risen 3%. Over the past year, GE shares have dropped almost 20%, compared with a 17% gain for the S&P 500.

The Argus report noted that GE is undergoing numerous transitions:

We believe that GE will benefit from its renewed focus on its Industrial businesses, as well as from its strong presence in the power generation, aviation and healthcare markets. We see the sizable and growing backlog, smaller GE Capital footprint, and substantial share buyback program as positives for General Electric shareholders. Share price growth may be limited, however, due to earnings transparency issues relating to the company’s constant restructurings, as well as to cash flow generation issues and simply the law of large numbers, which makes growth difficult. A new CEO, with a background in deal-making, could reduce GE’s business portfolio, leading to new growth opportunities. We will know more in November. In the meantime, we think value investors can rely on the utility-like dividend yield of about 4.0%.

Argus is also comfortable with GE’s big dividend yield. The firm pointed out that the current annual rate of $0.96 (per share) yields about 3.6%, which it thinks is secure and likely to grow modestly. The Argus dividend estimates are $0.96 per share for 2017 and $1.00 per share for 2018.

So as to show the good with the bad, here is what a few other analysts have written about GE since its last earnings report. Many other analysts have trimmed expectations and targets or have muted their bullishness for GE — and some are outright bearish.

On September 14, Deutsche Bank maintained a Sell rating on GE with a $21 price target. The firm believes that GE faces serious pension underfunding issues that “could significantly drag already scarce cash flow for years to come.”

On September 11, Morgan Stanley affirmed an Equal Weight rating with a $26 target. Unfortunately the firm also said that it sees 2018 earnings resetting down around $1.20 per share, with a credible path back to $1.55 to $1.60 per share “if CEO Flannery can deliver real productivity savings.” The firm said that it continues to see more favorable risk/reward below $23.

On September 7, JPMorgan’s call was for an Underweight rating with a $22 price target. The prior $24 target is something that the firm feels is now a ceiling rather than a floor, and it noted that GE might need to trade down into “the high teens” before finding an “investable fair value.”

Merrill Lynch has a Neutral rating on GE, after cutting it from Buy back in April. Its current price objective is $30.

Stifel trimmed its target to $28 from $33 in July.

CFRA (S&P Global) has a Hold rating and its most recent target is $27.00.

GE closed at $23.93 a share on Friday, but the stock was last seen up 1.4% at $24.25 midday Monday. GE shares have a 52-week trading range of $23.58 to $32.38, and the consensus analyst price target remains closer to $29.